Delhi High Court
Lok Nath Prasad Gupta vs Uoi & Ors. on 13 April, 2012
Author: R.V. Easwar
* IN THE HIGH COURT OF DELHI AT NEW DELHI
+ W.P.(C) No.2196/2008
Reserved on: 14th February, 2012
% Date of Decision: 13th April, 2012
LOK NATH PRASAD GUPTA .....Petitioner
Through: Mr. S.K. Bagaria, Sr. Adv. with Mr.
Kavin Gulati, Praveen Kumar, Mr.
Sanjay K. Shandilya, Mr. Gopal
Das, Mr. Saurabh Bagaria and
Ms. Poonam Singh Advocates.
Versus
UOI & ORS. ....Respondents
Through: Mr. Mohan Parasaran, ASG with
Mr. Satish Aggarwala and Mr. N.
Heyappan, Advs.
CORAM:
HON'BLE MR. JUSTICE SANJIV KHANNA
HON'BLE MR. JUSTICE R.V. EASWAR
1. Whether Reporters of local papers may be allowed to see the judgment?
2. To be referred to the Reporters or not ? Yes.
3. Whether the judgment should be reported in the Digest? Yes.
R.V. EASWAR, J.:
This is a petition filed by Loknath Prasad Gupta under article
226 of the Constitution of India praying for the issue of an appropriate
writ, order or direction to the Customs and Central Excise Settlement
W.P.(C) 2196/2008 Page 1 of 27
Commission (hereinafter referred to as „CCESC‟) quashing their order
passed on 29.02.2008 in so far as it relates to the duty/ liability of `
38,82,97,992/- and in so far as it rejects the claim of the petitioner for
(a) immunity from penalty of ` 40,00,00,000/- and (b) immunity from
interest payable by the petitioner.
2. The petitioner is the proprietor of M/s. Loknath Prasad Gupta
carrying on business in the manufacture of "Khaini" (chewing
tobacco) under the brand name "Raja" and "Champion". He owns
two factories, one at Delhi and another at Kolkata. The business is
being carried on by him since 1987. The factories are registered under
the relevant provisions of the Central Excise Act, 1944 (hereinafter
referred to as „Act‟).
3. The branded chewing tobacco which is also known colloquially
as "Khaini" is exigible to central excise duty under the Act read with
Chapter 24 of the first schedule to the Central Excise Tariff Act, 1985.
In the present writ petition, the dispute centres around the manufacture
of "Raja" brand Khaini and there is no dispute regarding "Champion"
brand. In order to manufacture Khaini, the following raw materials
are required: -
1. Raw Tobacco 900.0 kgs.
2. Snuff Powder 137.5 Kgs.
3. Refined Groundnut Oil 125.0 Kgs.
W.P.(C) 2196/2008 Page 2 of 27
4. Lime 75.0 Kgs.
5. Other Chemicals
(a) Kewra Water 1.5 Kgs.
(b) Menthol 2.0 Kgs.
(c) Black Pepper 9.0 Kgs.
Grand Total 1250.0 Kgs.
4. In addition to the above, packing materials are also required
which are called "laminates". The Khaini is packed in pouches of 5
gm. and 9 gm. each.
5. The officers of the Directorate General of Central Excise
Intelligence searched the factories of the petitioner located both in
Delhi and Kolkata on 31.05.2005. Searches were also conducted at
the residence of the petitioner. On the basis of the materials collected
during the search, several queries were raised and put to the petitioner.
After examining the explanation and replies of the petitioner, and after
considering the material gathered during the search, the Additional
Director General of the Directorate of Central Excise Intelligence,
who is respondent No.2 in the petition, issued a showcause notice
seeking the explanation of the petitioner regarding the clandestine
clearance of "Raja" brand Khaini amounting to ` 105,37,71,452/- for
the period from 01.05.2001 to 31.03.2006. The petitioner was called
upon to show-cause why excise duty should not be paid by him on the
W.P.(C) 2196/2008 Page 3 of 27
above and also why no penal action shall be taken against him. The
petitioner was also asked to showcause why the seized Khaini should
not be confiscated. There were two parts to the show-cause notice
which were as under: -
"(a) It was alleged that 13,51,057 Kg and 35,31,150 Kg
of raw tobacco was received by the Petitioner's Delhi
and Kolkata factories but it was not accounted for in the
records. On this count, the amount of duty evaded was
alleged to be ` 51,78,65,995/-
"(b) It was alleged that weight of water was not taken
into consideration and this resulted in suppression of
production involving duty evasion of ` 53,57,18,425/-"
6. It was the petitioner‟s stand that there was evidence to show
evasion of excise duty/ liability only to the extent of ` 18,26,81,905/-
from both the factories and that the excess of duty liability over and
above the said amount was not supported by any evidence and,
therefore, the petitioner was not liable to pay any duty over and above
the aforesaid amount.
7. While matters rested as above, the petitioner filed an application
u/s 32E of the Act on 06.11.2006 before the CCESC, which is
respondent No.5 in the present petition, seeking settlement of its case
arising out of the show-cause notice. In the application, the petitioner
W.P.(C) 2196/2008 Page 4 of 27
admitted additional excise duty liability of ` 18,26,81,905/- towards
settlement of the dispute involving alleged duty evasion of `
105,37,71,452/- for the period 01.05.2001 to 31.03.2006. In the
application for settlement, he explained that the admitted duty liability
related to Khaini cleared from his factory without payment of duty
and that the duty to this extent (i.e., `18,26,81,905/-) was supported
by documents, evidence and statements collected by the central excise
authorities. As regards the balance of duty alleged to have been
evaded by the petitioner as per the show-cause notice, the petitioner
sought to explain what he considered to be the correct position before
the CCESC. It was inter alia explained that the excise duty demand
over and above the aforesaid amount of ` 18,26,81,905/- was based
on certain allegations regarding receipt of raw tobacco and non-
addition of water in the weight of the final product and it was
submitted that these allegations were based purely on suspicion and
surmise and were not true. It was pointed out that the allegation of
duty evasion over and above the aforesaid amount by the central
excise authorities was on theoretical assumptions and calculations
without any evidence to show purchase of raw material that would be
required for the manufacture of the Khaini. The petitioner stated
further that out of the additional duty liability admitted in the
W.P.(C) 2196/2008 Page 5 of 27
application for settlement, duty of ` 10,00,00,000/- had already been
paid.
8. It appears that the petitioner was asked by the CCESC to file a
separate application under Section 32E in respect of the Kolkata
factory in Calcutta Bench and seek transfer of the same to the
Principal Bench of the CCESC at New Delhi. This direction was
complied with by the petitioner. By order dated 06.03.2007 the
CCESC admitted the settlement application in accordance with
Section 32F(1) of the Act subject to the petitioner depositing the
balance amount of the admitted liability. In pursuance of this
direction the petitioner deposited the balance duty of `8,26,81,905/-
on three dates namely 15th, 16th and 21st March, 2007. Thus, the duty
of ` 18,26,81,905/- admitted by the petitioner before the CCESC was
paid.
9. The CCESC, after hearing the parties and after taking into
account all the material/ evidence, passed its final order on 27.02.2008
under Section 32F(7) of the Act. In this order, which is under
challenge before us, it was held by the CCESC as under: -
(a) The petitioner is liable to pay excise duty of `
58,09,79,897/-. Since the petitioner had paid ` 18,26,81,905/-,
W.P.(C) 2196/2008 Page 6 of 27
the balance duty of ` 38,82,97,992/- was directed to be paid by
the petitioner within 15 days of the receipt of the order.
(b) The petitioner was not given full waiver from penalty. He
was directed to pay ` 40,00,00,000/- by way of penalty and the
amount of penalty in excess of the aforesaid amount was
waived. The penalty amount of ` 40,00,00,000/- was also
directed to be paid within 15 days of the receipt of the order.
(c) The petitioner was directed to pay interest at the rates
applicable during the relevant period. No immunity was
granted.
(d) The seized goods were directed to be released on payment
of fine in lieu of confiscation. Payment of redemption fine was
also ordered.
(e) Immunity was granted to the petitioner from prosecution
under the Act, subject to payment of duty, interest, fine and
penalty as directed by the order.
10. It is the aforesaid order of the CCESC passed on 29.02.2008 that
is under challenge before us in the present writ petition.
11. The learned counsel for the petitioner even at the outset fairly
stated that he would not press the challenge to the duty liability before
W.P.(C) 2196/2008 Page 7 of 27
this Court and that he would confine the claim only to the penalty and
interest directed to be paid by the petitioner by the order of the
CCESC dated 29.02.2008. In its order under challenge, so far as the
interest and penalty are concerned, the CCESC directed as under: -
"Interest: - Since the main applicants did not pay the
duty when due, they have taken financial accommodation
at the cost of exchequer. Having regard to facts and
circumstances of this case, Bench is not inclined to give
waiver from interest. Bench orders payment of interest at
the rate(s) applicable during relevant period. Duty
evaded has been calculated financial yearwise in the
Show Cause Notice. Hence interest for the duty evaded
in a financial year may be calculated with effect from 1st
April of the financial year following that financial year.
Revenue is directed to calculate the interest as per this
order and inform the main applicant about the same
within 15 days of receipt this order, where upon the main
applicant shall pay the amount of interest within 15 days
of the receipt of such intimation.
Penalty: - Keeping in view of the scale of evasion and
other circumstances of the case, the Bench is not inclined
to grant full waiver from penalty. However, keeping in
view the co-operation extended by all the applicants
during the settlement proceedings, the Bench grants
immunity from penalty to M/s Loknath Parsad Gupta Unit
No.I and II in excess of ` 40,00,00,000/- (Rs.Forty
Crores only) under the provisions invoked in the SCN.
They are directed to deposit the amount of penalty of
Rs.Forty Crores within 15 days of receipt of this order.
Full waiver from penalty is granted to the co-applicants."
W.P.(C) 2196/2008 Page 8 of 27
12. It is submitted on behalf of the petitioner that a sum of `
13,00,00,000/- amounting to 50% of the interest of ` 25.87 crores,
which is amount of interest calculated as per the orders of the CCESC,
has been paid by the petitioner. The penalty of `40,00,00,000/-
has also been paid in four equal installments as per the directions of
the Supreme Court in SLP No.19974/2008 dated 16.09.2008.
13. The arguments of Mr. Bagaria, learned counsel for the
petitioner, so far as the interest directed to be paid by the CCESC is
concerned, may be summarized as under: -
(a) The petitioner had fully co-operated in the proceedings
before the CCESC as required by Section 32K of the Act and
this has been recognised even by the CCESC. In the last page
of their order they have observed that the petitioner may be
granted immunity from penalty in excess of ` 40,00,00,000/-
"keeping in view the co-operation extended by all the applicants
during the settlement proceedings".
(b) In several orders passed by the CCESC in the case of
Khaini manufacturers, the CCESC has directed the
manufacturers to pay simple interest at only 10% per annum,
that too in cases where the show-cause notice was issued
W.P.(C) 2196/2008 Page 9 of 27
alleging higher duty evasion than in the petitioner‟s case, which
was reduced by the CCESC to almost 50% thereof. As an
example the order of the CCESC dated 15.02.2007 in the case of
M/s. Murari Lal Harish Chandra Jaiswal (P) Ltd. was cited. In
this case though the show-cause notice alleged excise duty
evasion of ` 34.50 crores, the CCESC had reduced the same to
` 16.70 crores and even in such a case the interest was directed
to be paid only at 10% per annum.
(c) The CCESC has in several cases passed orders directing
the levy of token amount of interest and consistent therewith,
should have also reduced the interest to be paid by the petitioner
to 10% per annum.
(d) Full and true disclosure in the settlement application does
not necessarily mean that the applicant before the CCESC
should declare the entire duty mentioned in the show-cause
notice. Though the petitioner is not challenging the duty
liability determined payable by the petitioner, that is only
because the petitioner is desirous of putting a quietus to the
matter.
W.P.(C) 2196/2008 Page 10 of 27
(e) There are contradictions and weaknesses in the order of
the CCESC determining the duty/ liability at ` 58,09,79,897/- as
against the admitted liability of ` 18,26,81,905/-.
(f) As per Section 32K of the Act as it existed during the
relevant time, the CCESC had the power to grant immunity
from interest either fully or partly. It was the consistent practice
to grant immunity from interest in full or in excess of 10% per
annum. In the petitioner‟s case the CCESC has directed
payment of interest at the applicable rates and on this basis the
central excise authorities have quantified the interest by
applying the rates of 24%, 18% and 13% for different periods.
The CCESC has thus discriminated between persons similarly
situated which is in violation of article 14 of the Constitution of
India.
14. The arguments of Mr. Bagaria, learned counsel for the petitioner
with regard to the penalty of ` 40,00,00,000/- imposed by the CCESC
are that the CCESC has taken into account only the co-operation
extended by the petitioner in proceedings before it and that it has
omitted to take into consideration the fact that the petitioner has made
a full and true disclosure of the duty liability. He submitted that the
full and true disclosure contemplated by Section 32K(1) of the Act
W.P.(C) 2196/2008 Page 11 of 27
does not mean disclosure of the duty liability demanded in the show-
cause notice and that it means what the petitioner has in truth and
reality evaded by way of non-payment of the duty. He pointed out
that the entire addition by the CCESC was based only on assumptions,
conjectures or possibilities and that certainly two or more views were
possible, but this debatable addition cannot by itself lead to the
conclusion that the petitioner has not made a full or true disclosure of
its duty liability. It is highlighted that the case of the Revenue and
computation made by them was rejected as illogical. In particular it
was pointed out that with regard to the water consumption addition of
` 17,00,00,000/- made by the CCESC the calculations are made on
probabilities and possibilities. It was further pointed out that while
calculating the moisture content in the tobacco, it is to be noted that
once the inherent moisture in the tobacco is admitted, the question as
to how much moisture was present in the tobacco would also be a
matter of estimate which cannot affect the truth and fullness of the
disclosure. The sole basis for fastening the excise duty/ liability over
a period of 5 years upon the petitioner was only an estimate of the
inherent moisture in the tobacco. When there is no clinching factual
or expert evidence regarding the water consumption and for the
further addition of ` 17,00,00,000/- made by the CCESC it cannot be
said that there was no full and true disclosure by the petitioner.
W.P.(C) 2196/2008 Page 12 of 27
15. As against the above arguments of the learned counsel for the
petitioner, Mr. Mohan Parasaran, the learned Additional Solicitor
General of India, submitted that the CCESC has not acted arbitrarily
but has applied its mind to each and every aspect of the case as
required by Section 32F (7) of the Act. According to him, even in the
matter of determining the amount of excise duty evaded by the
petitioner, the CCESC has supported its conclusion with reference to
incontrovertible figures and percentage and calculations as is evident
from paragraphs 26 to 30 and 41 to 44 of its order. He contended that
the claim of the learned counsel for the petitioner that there were
several contradictions and weaknesses in the method adopted by the
CCESC in arriving at the excise duty evaded by the petitioner is
untenable. The non-waiver of any part of the penalty ` 40,00,00,000/-
or the interest liable to be paid by the petitioner was a well-considered
decision taking into account all aspects of the case and it cannot be
said that the CCESC has exercised its discretion improperly or non-
judicially.
16. We have carefully considered the rival contentions. Judicial
review of the order of the CCESC has its own parameters and
limitations. We can only examine the decision-making process but
not the actual decision arrived at by the CCESC, unless the decision is
irrational, illegal or perverse. This position is well settled and
W.P.(C) 2196/2008 Page 13 of 27
reference may only be made to the judgment of S.B. Sinha, J.
speaking for the Supreme Court in State of U.P. and Anr. Vs.
Johrimal (2004) 4 SCC 714. The following observations sum up the
entire legal position:-
"It is well-settled that while exercising the power of
judicial review the Court is more concerned with the
decision making process than the merit of the decision
itself. In doing so, it is often argued by the defender of an
impugned decision that the Court is not competent to
exercise its power when there are serious disputed
questions of facts; when the decision of the Tribunal or
the decision of the fact finding body or the arbitrator is
given finality by the statute which governs a given
situation or which, by nature of the activity the decision
maker's opinion on facts is final. But while examining and
scrutinizing the decision making process it becomes
inevitable to also appreciate the facts of a given case as
otherwise the decision cannot be tested under the grounds
of illegality, irrationality or procedural impropriety. How
far the court of judicial review can reappreciate the
findings of facts depends on the ground of judicial review.
For example, if a decision is challenged as irrational, it
would be well-nigh impossible to record a finding whether
a decision is rational or irrational without first evaluating
the facts of the case and coming to a plausible conclusion
and then testing the decision of the authority on the touch-
stone of the tests laid down by the Court with special
reference to a given case. This position is well settled in
Indian administrative law. Therefore, to a limited extent of
scrutinizing the decision making process, it is always open
to the Court to review the evaluation of facts by the
decision maker."
17. The CCESC i.e. Customs and Central Excise Settlement
Commission was established under Section 32 of the Central Excise
Act. The settlement machinery is meant for providing a chance to the
tax evader who wants to turn a new leaf as recommended by the
Direct Taxes Enquiry Committee, popularly known as Wanchoo
Committee. However, the CCESC has to settle cases only in
accordance with law and the provisions of the Act and it has no power
to go beyond those provisions. The power to grant immunity from
penalty is conferred upon the CCESC by sub-section (1) of Section
32K of the Act. If it is satisfied that any person who made the
settlement application "has co-operated with the settlement
commission in the proceedings before it and has made full and true
disclosure of his duty liability", it may grant to such person, subject to
conditions which it may think fit to impose, immunity from the
imposition of any penalty, fine and interest under the Act with respect
to the case covered by the settlement. Sub-section (2) provides for
withdrawal of immunity if it turns out that the terms of the order of
settlement regarding payment of the duty are not complied with. Sub-
section (3) also provides for withdrawal of the immunity if the
CCESC is satisfied that it was obtained by concealment of material
particulars or by giving false evidence.
18. In view of the settled legal position, we are to confine ourselves
to examining the decision making process followed by the CCESC in
the present case. As regards the penalty of ` 40,00,00,000/- imposed
on the petitioner, we are unable to find fault with the decision-making
process adopted by the CCESC. There may be some merit in the
argument of the learned counsel for the petitioner that full and true
disclosure may not necessarily mean extent of the excise duty liability
as stated in the show-cause notice. However, one has to keep in mind
the entire conspectus of facts. In the present case, the CCESC has
observed in paragraph 48 of its order as under: -
"48. Before finally settling the case, Bench would like to
observe that it is a case of clandestine manufacture and
clearance of goods which continued for a very long time.
Amount of evasion is huge. Applicants have admitted
clandestine manufacture and removal of Khaini only in respect
of the quantities of Raw material to the extent that had gone into
the manufacture of Khaini on which duty liability of
Rs.18,26,81,905/- was worked out. Beyond this, their disclosure
cannot be taken as full and true. Hence they do not deserve full
exemption from penalty and this aspect needs to be kept in view
while deciding on the extent and conditions of immunities."
19. We cannot possibly say that while observing as above, the
CCESC took into account any irrelevant material or ignored relevant
material. The conduct of the petitioner was a relevant factor to be
taken into account. The fact that the petitioner admitted clandestine
manufacture and removal of Khaini is also a relevant factor to be
taken into account. Moreover, the CCESC has noted that such
clandestine manufacture had continued for quite a long period (almost
5 years). This is also a very important factor which the CCESC has
rightly taken into consideration. The duty admitted by the petitioner
before the CCESC was ` 18,26,81,905/- which was enhanced by the
CCESC to ` 58,09,79,897/-. There is a difference of ` 40,00,00,000/-
(approximately) which is quite a substantial difference. The CCESC
has accepted that the petitioner had extended co-operation in the
proceedings before them. However, section 32K(1) of the Act
requires both co-operation and full and true disclosure of the duty
liability. The huge difference between the duty liability admitted by
the petitioner before the CCESC and the ultimate duty liability
determined by the CCESC, was an important and relevant
circumstance. The contention of Mr. Bagaria, learned counsel for the
petitioner, to the effect that the calculations and working of the
CCESC for arriving at the duty liability are based on surmises or
conjectures or probabilities and, therefore, it cannot be said that the
petitioner did not make a full or true disclosure of the duty liability is
only one facet of the case. In this connection, we have referred to
paragraphs 41 to 44 of the impugned order. We have gone through
the same and record our observations in the following paragraphs.
20. In paragraph 41 to 44 of the impugned order, the CCESC has
referred to the fact that the dispute was not with regard to the total
weight of inputs that are required to manufacture Khaini and the
dispute was only about the weight of the water that was to be added.
The central excise authorities had relied upon certain test reports to
ascertain the water contained in the Khaini, but the CCESC rejected
them as not reliable and this fact is recorded in paragraph 35 of the
impugned order. The calculations made by the central excise
authorities were commented upon and it was observed that the
formula adopted by them did not account for any evaporation during
manufacturing process. Having rejected the test reports relied upon
by the central excise authorities and having disputed the accuracy of
the calculations made by them, the CCESC proceeded to make its own
calculations. It is this exercise which is reflected in paragraphs 41 to
44 of the impugned order. It is not necessary to examine in detail the
calculations made by the CCESC in these paragraphs. Suffice to note
that these calculations, as rightly pointed out by the learned Additional
Solicitor General, show application of mind to the claims put forth by
the petitioner. The impugned order shows that the estimate and the
calculations were based on strong probabilities and sound logic and
they are not vulnerable to the criticism of being a mere ipse dixit.
When clandestine removal was established, duty evasion has to be
necessarily estimated in the absence of any direct evidence or material
to show the exact quantum of duty-evasion. In paragraph 42 of the
impugned order, the CCESC has rightly observed that proceedings for
settlement cannot be circumscribed by strict rules of evidence and that
any minor inconsistencies and inaccuracies in the calculations by the
central excise authorities cannot justify rejection of the entire
procedure adopted in reaching the estimate. The question of moisture
content in the finished Khaini was taken up for detailed examination
by the CCESC. It would be appropriate to re-produce paragraphs 42
to 44 of the impugned order in order to highlight the efforts taken by
the CCESC to arrive at a reasonable estimate of the excise duty
liability: -
"42 As mentioned earlier, settlement proceedings are
different in nature from other proceedings such as
adjudication proceedings or trial is a court of Law. Such
proceedings cannot be bound down by strict rules of
Evidence Act or the concept of total collaboration of
Evidence. To reach a settlement, it may sometimes be
appropriate to logically examine the evidence and if it
contains some inconsistency, to remove the same rather
than reject the entire evidence. Bench is therefore, of the
opinion that minor inconsistency should be removed and
the final view should be tested with the help of the
process Panchnama. It is a fact that %ages in which the
ingredients were put as mentioned in para 21 above are
not disputed by both the sides. What is disputed is the
quantum of moisture content in the finished Khaini. The
Bench has observed that if all the ingredients including
moisture are added the resultant total comes to 121.8
whereas the weight of the ingredients is in percentage
basis which is relatable to 100. Further, the Tobacco
content has been shown on dry basis in the test reports
whereas the weight percentage of other ingredients
include moisture content and moisture has also been
calculated separately. The Bench notes that the moisture
cannot exist in vacuum and has to be contained in a
substance. Further, in case the weight of the moisture is
to be excluded, it is difficult to exclude weight of 1
ingredient individually. Either the moisture is extracted
from all the products or none at all. Keeping in view the
above, Bench finds that in order to arrive at actual
weight of the Tobacco which has been shown on the dry
basis in the test reports, the most appropriate method
would be to segregate the percentage of moisture content
altogether and then arrive at some conclusion. The
Bench further notes that in addition to Tobacco Snuff
being the products of the same agricultural product
would also be forming part of the Tobacco percentage
shown in the test reports. Thus, the weight of the Snuff in
the ratio in which the same have been put, in needs to be
subtracted from the quantity of Raw Tobacco as shown in
the test reports. Further, in order to arrive at the total
Tobacco content in its natural state in which the same
had been put in the manufactured Khaini, the same
percentage that was inherent in the Raw Tobacco needs
to be added. Keeping in view the above parameters, the
Bench finds that simply to calculate the correct
percentage of Tobacco in the finished Khaini on the basis
of the total of the product being 100, would be the correct
method.
43 In view of the above observations, the Bench
proceeds to calculate the quantity of Raw Tobacco in its
natural state contained in 100 Kgs of finished Khaini as
under: -
The mean weight percentage of Tobacco on dry basis as
per test report - 64.95. The ratio of Tobacco + Snuff is
72.11.
Thus, the total of Tobacco + Snuff = 72+11=83.
Accordingly, the ratio of Tobacco + Snuff on dry basis
would be
For Tobacco - 72+83X64.95 =56.34.
For Snuff - 11+83X64.95 = 8.61.
Total - =64.95.
Thus content of Tobacco on dry basis is =56.34
By adding 10% moisture in Tobacco comes to
(as per test report) = 56.34X10÷100 = 5.63
The total quantity of Tobacco with inherent moisture would be =61.97 (say 62)
Hence the ratio of Tobacco in finished Khaini = 62:100
Having come to the conclusion that a quantity of 62
Kgs of Raw Tobacco would make 100 Kgs of finished
Khaini, the Bench, in order to test the veracity of the
above calculations, undertook to check whether the above
calculations confirm to other parameters as given in the
test report.
44 Bench finds that total weight of all ingredients
excluding water that had been put into the product as per
a process panchnama was 100 Kgs of ingredients. 50
Kgs of water was added to it. The Bench is of the view
that all the quantity of water put in as per the process
panchnama cannot remain part of the total quantity of
Khaini manufactured as claimed by the Revenue since
there were various processes such as mixing, curing etc.
involved during the manufacture and some part of the
same would evaporate. The Bench is also not inclined to
believe the version of the applicant that the whole
quantity of water put in would evaporate during the
process. It also defies logic. Considering that the total
weight of all the ingredients that had been put in were
100 Kgs and a quantity of 50 Kgs of water had been
added into it, some of which would evaporate during the
process of manufacture and the total of all the ingredients
including moisture would not be 150 Kgs. In this regard
the Bench observes that the said ratio of Tobacco to
Khaini which is 62:100 confirms to the observations
made above. If the weight of other ingredients is added
to quantity of Tobacco, the same comes as under: -
Ground Nut Oil 10
Thus in a quantity of 100 Kgs, 10 Kgs is water. If
inherent moisture of all the other ingredients, which
comes to about 8% is added to it, the total water contents
become 18 Kgs. It is seen that the Ground Nut Oil is also
liquid which should also for part of the liquid content.
That makes all the liquid contents to about 28% which is
quite nearer to the figure of 33% moisture shown in the
test report and appears to be very reasonable.
In view of above discussions, the Bench is of the
view that in the circumstances of the case where there is
controversies about test reports and the taw sides did not
agree to a fresh test, the finding duly verified from
different angles would be the best possible and most
accurate formula to reach the total amount of production
of Khaini on the basis of the quantity of Raw Tobacco.
Bench accordingly, determines that 62 Kgs of Raw
Tobacco would result in the manufacture of 100 Kgs of
Khaini in applicant's case. Final production figures of
Khaini are therefore to be worked accordingly."
These observations of the CCESC more than adequately demonstrate
the application of mind and the efforts of the CCESC to arrive at an
estimate of the excise duty due from the petitioner which can be said
to be close to the actual duty payable by the petitioner. They also
show that there is no flaw in the decision-making process in arriving
at the excise duty liability of the petitioner.
21. If this much is granted, it should follow that the impugned order,
in so far as the penalty is concerned, is beyond the bounds of judicial
review. It must be recognised that in the very nature of things the real
excise duty payable by the petitioner must be necessarily based on
calculations and figures which must be derived from the material or
evidence present before the CCESC. That such figures and
calculations are not foolproof and could be less than 100% accurate
cannot be an argument available to the petitioner in order to put forth
its claim for immunity from penalty to the extent of ` 40,00,00,000/-.
As already pointed out the petitioner had admittedly indulged in
clandestine manufacture and removal of excisable goods without
payment of excise duty. Obviously, there would be no record
showing precisely the figure of excise duty sought to be evaded by the
petitioner. But for that reason the central excise authorities or the
CCESC cannot throw up their hands and plead helplessness; they have
to perforce arrive at a reasonable estimate of the Khaini that has been
cleared without payment of excise duty. Such an exercise has been
carried out by the CCESC and the efforts taken by them in arriving at
the excise duty sought to be evaded by the petitioner in such a manner
that it is as close as possible to the actual duty sought to be evaded is
palpably and ably demonstrated in the order, if we may say so with
respect.
22. We are unable to subscribe to the contention of the learned
counsel for the petitioner that the scale of evasion of duty is a totally
extraneous reason for not granting full immunity from penalty. The
case before us is one where evasion of duty to the extent of `
40,00,00,000/- (approximately) has been worked out. It is a
substantial amount and in our opinion the CCESC has rightly kept it
in mind while refusing to grant immunity. We are also unable to
assent to the proposition that this is a case where only a token penalty
ought to have been levied. We are satisfied that the CCESC has
exercised its discretion properly, having due regard to all relevant
factors.
23. So far as the interest is concerned, the case of the petitioner
appears to us to stand on a better footing. It may be made clear at the
outset that the learned counsel for the petitioner has agitated only the
rate of interest. He has contended that in several other cases the
CCESC has charged interest only at the rate of 10% whereas in the
petitioner‟s case it has ordered payment of interest at the rates
applicable during the relevant period. It is stated that for the relevant
period three different rates were applicable - 24%, 18% and 13%. It
is submitted that despite different rates of interest prescribed by the
statute for the relevant period, the CCESC in several cases has either
granted full immunity from payment of interest or as restricted the rate
of interest to 10% for the entire period. A list of such cases was
given. The submission is that there is no ground made out for
discriminating against the petitioner. It is pointed out further that the
total interest liability has been calculated by the central excise
department at ` 25.87 crores out of which the petitioner has paid `
13,00,00,000/-. Reliance is placed on the judgment of the Bombay
High Court in West Coast Ingots Pvt. Ltd. v. UOI, 2008 (232) ELT
21.
24. We find force in the submissions of the learned counsel for the
petitioner so far as the waiver of interest is concerned. We may
hasten to add that we are not inclined to grant full immunity from the
interest. However, having regard to the fact that it has been the
uniform practice of the CCESC to direct payment of interest @ 10%
for the entire period, as seen from its orders filed before us, it seems to
us that to direct the petitioner to pay interest at the different rates in
force during the material period would be inconsistent and may even
be discriminatory. This aspect has not been considered and noticed in
the impugned order. Rather than remanding this old matter, we have
examined the issue. We are informed that interest @ 10% for the
entire material period would amount to ` 19.56 crores as against `
25.87 crores directed to be paid by the CCESC. The petitioner has
already paid ` 13,00,00,000/-. He is directed to pay the balance of
interest on the footing that interest payable would be at the rate of
10% for the entire relevant period. Immunity is allowed with regard
to the balance of interest over and above the said percentage.
25. In the result the writ petition is partly allowed, the only relief
being with reference to the rate of interest payable by the petitioner.
All interim orders stand vacated. There shall be no order as to costs.
(R.V. EASWAR)
JUDGE
(SANJIV KHANNA)
JUDGE
APRIL 13, 2012
hs
